Westgold Resources Limited - demerger of Castile Resources Pty Ltd
Please note that the PDF version is the authorised version of this ruling.
|Table of Contents||Paragraph|
|What this Ruling is about|
|Who this Ruling applies to|
|When this Ruling applies|
Relying on this Ruling:
This publication is a public ruling for the purposes of the Taxation Administration Act 1953.
If this Ruling applies to you, and you correctly rely on it, we will apply the law to you in the way set out in this Ruling. That is, you will not pay any more tax or penalties or interest in respect of the matters covered by this Ruling.
Further, if we think that this Ruling disadvantages you, we may apply the law in a way that is more favourable to you.
What this Ruling is about
1. This Ruling sets out the income tax consequences of the demerger of Castile Resources Pty Ltd (Castile) by Westgold Resources Limited (Westgold), which was implemented on 3 December 2019 (Implementation Date).
Who this Ruling applies to
- were registered on the Westgold share register on 28 November 2019 (Record Date)
- held your Westgold shares on capital account on the Record Date, that is, you did not hold your shares in Westgold as revenue assets (as defined in section 977-50 of the Income Tax Assessment Act 1997 (ITAA 1997)) or as trading stock (as defined in subsection 995-1(1) of the ITAA 1997) on the Record Date, and
- are a resident of Australia as defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) on the Implementation Date.
4. This Ruling does not apply to anyone who is subject to the taxation of financial arrangements rules in Division 230 of the ITAA 1997 in relation to the scheme outlined in paragraphs 19 to 44 of this Ruling.
Note: Division 230 will not apply to individuals, unless they have made an election for it to apply to them.
When this Ruling applies
Demerger relief is available on the separation of Castile
6. A demerger, as defined in section 125-70 of the ITAA 1997, happened to the Westgold demerger group (which included Westgold and Castile) under the scheme described in paragraphs 19 to 44 of this Ruling. This has income tax consequences for you as set out in paragraphs 7 to 18 of this Ruling.
CGT consequences - Australian resident Westgold shareholders
CGT event G1
7. CGT event G1 happened when you were paid an amount by Westgold in respect of your Westgold shares by way of the transfer to you of Castile shares.
8. You will make a capital gain from CGT event G1 happening if the amount of the reduction of share capital for each Westgold share (2.2 cents) is more than the cost base of your share. The capital gain is equal to the amount of the excess. No capital loss can be made from CGT event G1.
Choosing demerger rollover
- any capital gain you made when CGT event G1 happened to your Westgold shares under the demerger is disregarded
- you must recalculate the first element of the cost base and reduced cost base of your Westgold shares, and calculate the first element of the cost base and reduced cost base of the corresponding Castile shares you acquired under the demerger - see paragraphs 12 to 14 of this Ruling for more details, and
- you are taken to have acquired Castile shares on the Implementation Date (except for the purpose of determining whether you are entitled to make a discount capital gain in relation to a subsequent CGT event that happens to the Castile shares you received under the demerger - see paragraph 15 of this Ruling).
Not choosing demerger rollover
- you cannot disregard any capital gain you made when CGT event G1 happened to your Westgold shares under the demerger, and
- you must recalculate the first element of the cost base and reduced cost base of your Westgold shares, and calculate the first element of the cost base and reduced cost base of the corresponding Castile shares you acquired under the demerger - see paragraphs 12 to 14 of this Ruling.
New cost base and reduced cost base of your Westgold and Castile shares
- taking the total of the cost bases of your Westgold shares just before the demerger, and
- apportioning that total between your Westgold shares and your Castile shares acquired under the demerger.
13. The apportionment is done on a reasonable basis having regard to the market values (just after the demerger) of the Westgold shares and Castile shares, or an anticipated reasonable approximation of those market values.
- attribute 97.25% of the total of the cost bases of your Westgold shares just before the demerger to the Westgold shares, and
- attribute 2.75% of the total of the cost bases of your Westgold shares just before the demerger to the corresponding Castile shares.
Acquisition date of the Castile shares for the purpose of making a discount capital gain
15. For the purpose of determining whether you can make a discount capital gain from a future CGT event that happens to a Castile share you acquired under the demerger, you will be taken to have acquired the Castile share on the date you acquired, for CGT purposes, the corresponding Westgold share (table item 2 of subsection 115-30(1) of the ITAA 1997). This will be the case whether or not you choose demerger rollover.
Not a dividend
16. No part of the value of a Castile share transferred to you under the demerger will be included in your assessable income under subsection 44(1) of the ITAA 1936. Although the part of the value of a Castile share that is not debited to the share capital account of Westgold is a 'dividend' under subsection 6(1) of the ITAA 1936, it will be a 'demerger dividend' under subsections 44(3), 44(4) and 44(5) of the ITAA 1936. A 'demerger dividend' is non-assessable non-exempt income for you.
The anti-avoidance provisions in sections 45B, 45BA and 45C of the ITAA 1936 will not apply to deem an assessable dividend
17. The Commissioner will not make a determination under paragraph 45B(3)(a) of the ITAA 1936 that section 45BA of the ITAA 1936 applies to the whole, or any part, of the demerger benefit provided to you under the demerger. This is because the purpose test in paragraph 45B(2)(c) of the ITAA 1936 is not satisfied. Therefore, you will not include any part of the amount of the demerger benefit (the market value of the Castile shares) in your assessable income under subsection 44(1) of the ITAA 1936.
18. The Commissioner will not make a determination under paragraph 45B(3)(b) of the ITAA 1936 that section 45C of the ITAA 1936 applies to the whole, or any part, of the capital benefit provided to you under the demerger. This is because the purpose test in paragraph 45B(2)(c) of the ITAA 1936 is not satisfied. Therefore, you will not include any part of the amount of the capital benefit (the market value of the Castile shares to the extent that it is not a demerger dividend you receive) in your assessable income under subsection 44(1) of the ITAA 1936.
- 399,469,957 fully paid ordinary shares, and
- 6,249,600 unlisted options issued under the Westgold Employee Share and Option Plan representing not more than 3% of the total number of ownership interests (as defined in subsection 125-60(1) of the ITAA 1997) in Westgold.
- $320,334,368 credited to its share capital account
- accumulated losses of $49,965,158, and
- equity reserves of $195,776,039.
The demerger of Castile
32. On 25 November 2019, Westgold shareholders voted at the Annual General Meeting to approve a resolution to reduce the share capital of Westgold by $8,803,840 under sections 256B and 256C of the Corporations Act 2001. The date for determining the entitlement of Westgold shareholders to receive Castile shares was 28 November 2019 (Record Date).
33. On 3 December 2019 (Implementation Date), Westgold satisfied the capital reduction by transferring of all of the ordinary shares in Castile to Westgold shareholders in proportion to their shareholdings in Westgold.
- debiting its share capital account by $8,803,840 (the capital reduction amount), and
- debiting its retained earnings account by $13,051,549 (the demerger dividend).
Reasons for the demerger
- Castile's base metal focus detracted from Westgold's pure gold focus and distracted management away from its core Western Australian operations
- the base metal assets of Castile have outstanding potential, and a dedicated and independent focus and budget for the development of the Castile assets could create more wealth for shareholders, and
- Castile's assets were competing for capital from a pool dominated by Westgold's existing gold operations and this suppressed their potential and that their fair value was not fully recognised as a consequence.
Sale facility for some foreign shareholders
41. Under a sale facility for 'ineligible overseas shareholders' of Westgold, the Castile shares they would have otherwise received were sold on market by a nominee and the net sale proceeds were remitted to those 'ineligible overseas shareholders'.
44. Just after the demerger, CGT assets owned by Castile and its demerger subsidiaries representing at least 50% by market value of all the CGT assets owned by those entities were used in carrying on a business by those entities (subsection 44(5) of the ITAA 1936).
Commissioner of Taxation
15 January 2020
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Section 104-135 of the ITAA 1997.
Subsection 104-135(3) of the ITAA 1997.
Subsection 125-80(1) of the ITAA 1997.
Subsection 125-80(2) of the ITAA 1997.
Section 109-5 of the ITAA 1997.
Subsections 125-85(1) and (2) of the ITAA 1997.
Subsections 125-80(2) and (3) of the ITAA 1997.
Not previously issued as a draft
ITAA 1936 6(1)
ITAA 1936 44(1)
ITAA 1936 44(2)
ITAA 1936 44(3)
ITAA 1936 44(4)
ITAA 1936 44(5)
ITAA 1936 45B
ITAA 1936 45B(2)(c)
ITAA 1936 45B(3)(a)
ITAA 1936 45B(3)(b)
ITAA 1936 45BA
ITAA 1936 45C
ITAA 1997 104-135
ITAA 1997 104-135(3)
ITAA 1997 109-5
ITAA 1997 115-30
ITAA 1997 115-30(1)
ITAA 1997 Div 125
ITAA 1997 125-55(1)
ITAA 1997 125-60(1)
ITAA 1997 125-70
ITAA 1997 125-80(1)
ITAA 1997 125-80(2)
ITAA 1997 125-80(3)
ITAA 1997 125-80(4)
ITAA 1997 125-80(5)
ITAA 1997 125-80(6)
ITAA 1997 125-85(1)
ITAA 1997 125-85(2)
ITAA 1997 Div 197
ITAA 1997 Div 230
ITAA 1997 977-50
ITAA 1997 995-1(1)
Corporations Act 2001 256B
Corporations Act 2001 256C